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IT Budget Agenda 2008
Spending for IT goods and services is expected to grow next year, as organizations enter a new phase of technology acquisition.
In 2008, IT will experience an 8 percent increase in spending over 2007 purchasing budgets—thats 3 percent more than in 2007, said Andrew Bartels, an analyst at Forrester Research, in Cambridge, Mass.
Data center consolidation, infrastructure refresh and security enhancements have typified much of IT spending since 2000. For 2008, spending patterns are expected to begin to change, as companies focus more on increasing productivity than in cutting costs.
“Forrester talks about two periods of technology acquisition, which we call tech digestion and innovation growth,” Bartels said.
During tech digestion, acquisition is all about price and ease of use, with budgets primarily driven by return on investment calculations. Theres a large focus on infrastructure rationalization and process automation—pretty much whats characterized technology acquisition for the past seven years or so.
Next year will signal a point of transition, as well see a whole new level of investment for the next four or five years. Purchases will be driven more by functionality and less by ROI calculations. “There will be a shift from making processes more efficient to helping companies optimize business results by adding analytics and vertical industry knowledge,” said Bartels.
According to Forrester research, software spending will show the greatest increase over 2007, rising by 10 percent, fueled by the drive for greater productivity as well as the spread of virtualization software in the data center. Communications equipment purchasing will show the greatest percentage increase (9 percent more than the 2007 budget), heavily influenced by carrier infrastructure investment.
Communications equipment purchasing by enterprises will be more modest, growing at 6 percent more than 2007 budgets. The budgets for computer equipment will show a slightly lower growth, at 4 percent, than it did in 2007, while budgets for IT services and outsourcing will jump by 8 percent.
Macro Issues
Discussions with industry analysts and IT professionals indicate that terms such as “security” and “disaster recovery” still have a place on ITs agenda, but moving up fast are terms including “green IT,” “data analytics” and “knowledge transfer.”
This latter term is particularly important: The increasing mobility of workers means that organizations suffer when individuals take their knowledge and intelligence with them. Web 2.0 technologies, such as wikis, blogs, and enterprise tagging and bookmarking systems, are being looked at as one approach for capturing that intelligence.
“Learning in major organizations is just repeated constantly,” said Keely Flint, enterprise information architecture program manager, at Bupa Health, based in the United Kingdom. “We developed a library of use cases so that people might come to a central repository to trigger ideas for new projects or gain guidance for existing projects.”
Mike Pelligrino agrees. The vice president of IT at Fuji Film, in Valhalla, N.Y., said hes automated pretty much everything that can be automated. Next year hell start using Microsofts SharePoint platform for collecting latent information in the organization. “We have intranets and our internal Web sites, but everybody has their drawers stuffed with information, so the idea is to promote the use of SharePoint as a common platform,” Pelligrino said.
Pelligrino added that some of these technologies dont have obvious ROI.
“There are some things that are just pure breakaway success from a technology standpoint, which the most progressive companies can leverage, that may not be so obvious from the standpoint of an ROI analysis,” Pelligrino said. He cites the Web as one of the best examples.
Organizations are also focusing on addressing immediate customer productivity requirements.
GE Real Estates IT budget is expected to increase by 3 percent to 5 percent next year, according to CIO Hank Zupnick, and a major business priority for the company, a business unit of GE Commercial Finance, is electronic content management for providing easy access to business documents such as tenant leases and third-party vendor contracts. “We are also investing heavily in expanding our financial analytic capabilities, especially in the area of subledgers, moving from [Microsoft] Excel-based tracking to a Java-based system that integrates with our general ledger,” said Zupnick, in an e-mail interview.
New Yorks Westchester County will deploy new tools next year to help employees be more productive. These tools include a case management system for the countys mental health facility and an expanded point-of-sale system at the countys amusement park, Rye Playland, said Westchester County CIO Norm Jacknis.
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Some of Jacknis other application plans could be considered more cutting edge: He plans to roll out virtual-reality planning simulations using Second Life-like technology. Those simulations will enable stakeholders to see the consequence of planning decisions, not just read about them in a static document. “If we concentrate development in these areas,” said Jacknis, “then we can see what will happen in other areas.”
Jacknis added that he has requested a 10 percent budget increase for 2008.
Wheres the Infrastructure?
Companies may be spending more on productivity-enhancing apps next year, but investment in infrastructure and the back-end processes that drive IT certainly wont stop.
Data center reorganization and consolidation continue to be major projects for many companies, driving investments in virtualization, storage, blade servers and more effective management tools.
“We are centralizing many of our infrastructure services [such as servers, network support and help desk] on the corporate level, rather than continuing to manage them ourselves,” GE Real Estates Zupnick said. “This will provide economies of scale [internal efficiencies], freeing up funds for new initiatives.”
As part of that effort, GE Real Estate is deploying WAFS (wide-area file services) in 30 North American regional offices in place of traditional file and print servers, with “significant success,” Zupnick said. GE also intends to expand the use of virtualization in 2008 as a part of its corporate centralization projects.
Fuji Films Pelligrino†also noted that a major focus next year will be consolidating data centers. During 2006 and 2007, Fuji Film rolled out most of its SAP implementation and put into place much of the necessary infrastructure for the platform. The company refreshed desktops, changed e-mail systems and put into place the SAP ERP (enterprise resource planning) modules.
Going forward, Pelligrino said he expects to concentrate on data center consolidation as part of Fuji Films broader multiyear Vision 75 business strategy (named for Fujis 75th anniversary in 2007), with a changing focus on productivity creation. Pelligrino said his budget will remain about the same in 2008, but he also sees the consolidation project yielding a 10 percent to 30 percent savings on related costs.
As such, heavy investment is expected in any sort of hardware consolidation technology, including blade servers and virtualization, as well as in storage, Pelligrino said. At the same time, Fuji Film will continue to merge onto SAP and increasingly explore SharePoint.
Much of that technology will increasingly need to use less power. Westchester, for example, is becoming a “green county.” The county established its own Global Warming Task Force, which means CIO Jacknis is starting to look at deploying equipment that uses less electricity and has lower heat dissipation than conventional gear. The push will extend to the desktop as well, Jacknis said.
Back-end investment will also be needed to address regulatory requirements. While the Sarbanes-Oxley Act may have required financial institutions to keep track of past correspondence, changes to the Federal Rules of Civil Procedure are requiring all organizations to have e-discovery programs in place. Westchester, for example, is putting into play a process to capture all voice mails, e-mails and correspondence, according to Jacknis.
Focus on Software
Given IT departments drive for productivity enhancements and better ability to address customer requirements, its understandable that software is expected to undergo the greatest change in investment.
Perhaps whats less clear is where the breakaway successes will come from. According to the IT executives interviewed for this article, one thing is clear: Neither VOIP (voice over IP) nor unified communications is expected to provide that value edge. While all are deploying VOIP, theyre doing so gradually, as PBXes reach their end of life or as new installations are rolled out.
It may be tempting to point to Web 2.0 technologies as the next wave of productivity-generating applications, but the technology is still maturing. Most executives contacted for this story said they are piloting or deploying some form of Web 2.0 technology, including wikis, blogs, social bookmarking and tagging systems, or virtual collaboration systems. But they said it is too soon to tell what impact the technology will have.
A safer answer may be the “verticalization” of broad-based applications: the process of applying industry knowledge to mined data, allowing companies to gain deeper insight into their businesses.
“Google can pool together enormous amounts of data, but we dont really know what information can come out of it yet,” said Pelligrino. “I think theres some opportunity to take some of that vertical knowledge and apply it to a broader information base to extract meaning and insight relevant to our requirements.”
Dave Greenfield is a 20-year networking veteran and the principal of Strategic Technology Analytics. He can be reached at dave@stanalytics.com.
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